Txvestor

I did not purchase the property. As time has progressed, it is apparent that Michigan has even MORE problems than what I initially thought. Crime is terrible. Taxes are bad (income, property, gasoline, sales). Auto insurance is 6.5X what I was paying in Texas, and is the highest in the country. It is highly likely that gasoline tax will increase $.40/gallon over the next 3 years resulting in the 2nd costliest gas in America. Most public skewls are a joke... The demographics are terrible. Winter is silly/brutal. People still believe/think of global warming? It was SNOWING during the tigers game on April 23rd. And to top it off, I missed getting killed by 5 minutes the other day. A truck plowed into the lobby of a business that I had been in 8 minutes earlier. One of the wildest things I've ever seen! I am seriously considering leaving the state at the end of summer/fall. Time for me to move! Sorry to hear that things are not getting any better over there. We need to have some sort of special economic zone there where there is a federal tax exemption for any start up or sub 100m annual revenue business for the next 10 yrs. the infrastructure is built, it just can't be maintained etc. Lots of social problems that have roots in economic problems. Interestingly the western part of the state is doing fine, more like a Wisconsin economy. Very pretty as well.

I think people have bought into the "Fed is going to raise rate => rates are going to rise" idea so much that, its very possible that the 10Y actually collapses sub 1% after the first rate hike. Just look at the German 10Y Bunds (7bps), Japan 10Y (30bps).....the UST 10Y at 188bps looks artificially high! Fed doesn't control the 10Y, only the overnight rate. I am in the camp that long term rates aren't going anywhere but down in near future absent a stupid US govt crisis. Now, compare the SP500 index dividend yield against this rate backdrop. I don't understand how people are so confident about a general market overvaluation. Dividend yields have been rarely below 10Y rates and we are in an environment with one of the lowest dividend payout ratios... So basically what you are saying is 'We are Japan'.

I disagree. Consider this. Prem bought the position in 2011 at EUR 0.10. He sold 1/3 of it at EUR 0.33 in 2014. This means that he incurred capital gains tax around 0.075 EUR per share. His next investment will have return 30% just to get back to even with his investment had it remained in BKIR - that doesn't even include whatever value accrues to BKIR over that interim. Looked at another way, he could have incurred a permanent 23% drop in BKIRs stock price before being on par with selling and incurring capital gains tax. The transaction was done again this year selling at EUR 0.36. The numbers are similar to the above. EUR 0.09 per share in tax means that the next investment needs to return 33% to break even (not including returns that would have accrued to BKIR) or that Prem could withstand a permanent loss of 28% on the investment from current prices to be on par with selling. Now consider that the position in question a bank with a captive market with limited competition. Banks in this environment have historically generated returns in the mid-teens on their equity (which is higher than normal). So, by selling and incurring capital gains tax, you already place yourself at a disadvantage for your next position to outperform, but it has to outperform a business that has a very good probability of being above average itself meaning that your next use of capital had better have extraordinary opportunity. I'm not saying it doesn't make sense to sell ever. I'm saying that the higher the proportion of your deferred capital gains to your position value, the higher the bar is for you to sell that position in favor of another one. With deferred capital gains, the bar for Prem is extremely high. I'm not sure it was met in 2014 and I'm not sure it was met with this sale either. If he's concerned about the size, he could've hedged the position for less money. If he's concerned about the market, he can take solace in the fact that it would require a significant double digit, permanent loss (and no correction in current currency value) to impair him more than selling would. If he needed the cash, it would have been better to issue equity above book value or debt at low rates as opposed to incurring the loss of $100M in capital gains tax. Unless you have losses to offset, and/or somewhere great to put the proceeds. The problem is that we passive investors often do not know this except in retrospect.

I've seen him say this more than once, but is this really true? Looking at http://www.berkshirehathaway.com/letters/2014ltr.pdf , 2008 shows 9.6% book value drop, 2001 shows 6.2% book value drop. Are these not related to portfolio drops? (I guess they might be operating business goodwill writedowns - 2001 could be GenRe, I'd have to look up...). Also didn't he have Washington Post drop over 50% as he was buying it and wasn't that a large part of his portfolio? It is still very surprising that he never suffered higher than 2% loss per year in his portfolio - if that's what he means. I don't think there's anyone else who has this kind of record... I think he is referring to a loss recorded at sale as a percent of BV. He wrote about this in his annual letter, i beleive when he was referring to Tesco which loss amounted to something like 1/3 of 1% of Berkshire BV when sold.

He said on CNBC, that Berkshire will own 320M of the 1.22B shares outstanding after the deal is completed. So roughly 26% of the new entity, which along with 3G they will control 51%. Price Paid: 9.5B or roughly $30 per share! So another 5B of the cash pile gets allocated wisely. The stock is trading at $81 right now, of which $16.5 will be going out as a special dividend before Berkshire gets their shares. So effectively their cost basis will have more than doubled with KRFT at the $65 range and Berkshires stake will have exceeded 20B in a company with great brands, wonderful management and a forever holding. Classic WEB.

A few notes after reading the letter this evening. I must say, i thought they were a lot more underwater in greece than they actually are. By my calculations only about 15% underwater and all due to Eurobank. Sounds hopeful but not too sure about the new greek gov't. Also, phenomenal work by Andy Barnard across the entire breadth of insurance operations. Finally a good defense of the recent capital raise for the Brit acquisition. It is accretive in the net in all relevant measures. I'm astonished at the acquisitions made in India since 2012 and their growth rates. You just cant buy that kind of growth at a sane price in the developed world, and I'm glad he is finding that for us over there. Though from a small base the runway is very long. I'd much rather be invested there than uber or one of the high flyers mentioned. The recent eastern European acquisions appear to have been done at steal prices. Sounds to me like Samsung did approach them and Watsa etc. wouldn't sell! Him specifically mentioning they wouldn't sell sounded like that for me.

Agree the west side of Michigan is actually more like Wisconsin. Prettier too.

I'm happy to see this reiterated. This is a good reminder of how different the previous environment was compared to today's. Yes but also remember that when he was running smaller sums in his partnership days, he employed the Benjamin Graham cigar butt approach in the 50s and thats when he had his greatest returns, until size became a barrier to that. For us small fry(most of us on this board), if you read between the lines, he is saying if you are sufficiently skilled the cigar butt approach is your best bet. Now thats a pretty big caveat, but nonetheless a distinction worth making. I disagree completely. I often see folks pointing to Buffett's methods of the 50's to support their investment approach. First, even when he was relatively small in the 70's, he immediately switched after partnering with Munger (with a few relapses) to quality investing. Also, most of his wealth was created by a handful of investments (particularly, GEICO). Even WB stated before that if he just bought and held GEICO instead of all his other investments he would have created more value. I think you are trying too hard to fit their advice to your preferred approach. Either way, quality investing being better or worse has nothing to do with WB's opinion (though it certainly makes it worth researching), the math behind returns in general just doesn't defend your opinion. Cigar butt investing is nothing more than greater-fool theory, I don't know how anyone can view it as anything else. If a company has expect future growth of 0% then each day the PV of the company is decreasing. Thus, you may get your projected higher price multiple and still realize losses! On the new CEO, I think it's funny it's Jain and Abel as the final candidates, and I think Jain would be the wrong choice as the value he provides to GEICO is greater than the gap between him and Abel (if any) and Abel and his replacement. Insurance is hard and he has run circles around the industry! Every time I read about Abel I come away more impressed. Below from the letter: "My cigar-butt strategy worked very well while I was managing small sums. Indeed, the many dozens of free puffs I obtained in the 1950s made that decade by far the best of my life for both relative and absolute investment performance." I get the view based on the above that for very small sums numbering in the single digit millions he would still look there. He rightly gives the example of Sees candy as a quality business that he almost let get away, and rightly praises Charlie's influence on him in this regard. But his roots were classic Graham cigar butt investing, and that scaled him into the tens of millions. The environment you are working in also matters. A depressed stock market, less dispersion of public information, less investors in general, back then perhaps worked in his favor, and have probably made such net net situations a lot rarer now. Also i think getting a result also requires activism as some of those microcaps could be hurting the shareholders for the starus quo to benefit someone else. Anyway, thats what worked for him. And based on recent statements and even what he says in this letter, I suspect he would take this approach again were he starting over.

FWIW. I went to that website and signed up for a quote. I got 3 quotes, the lowest of which was about 15% lower than my current policy for 2 vehicles. As i've been with my current carrier for over 10yrs and have not had anything but great service from them and have other insurances like homeowners, umbrella etc bundled, and had never heard of the insurance company underwriting this policy. I decided it was not worth it for me to change. This morning I got a call from an operator offering to put me in touch with a broker offering to discuss my needs further. So this might be them positioning themselves as yet another middleman and collecting a toll for that. That is something they really excel at! :)

Anyone else get the impression after reading these letters that Ajit Jain is the name as the next CEO? He mentions that Todd and Ted will manage the investment portfolio and have a lot of latitude. He also mentioned that the CEO role will be separated from a non-executive chairman position that will be filled by his son to safeguard the culture and to be decisive on any board recommendations.. I did not see any mention of Matt Rose, and he semi skewered the performance of BNSF in this letter. Which for his usual standards of lavishing praise was pretty harsh.

I found this line about him and Charlie interesting. "When we differ, Charlie usually ends the conversation by saying: “Warren, think it over and you’ll agree with me because you’re smart and I’m right."

I'm happy to see this reiterated. This is a good reminder of how different the previous environment was compared to today's. Yes but also remember that when he was running smaller sums in his partnership days, he employed the Benjamin Graham cigar butt approach in the 50s and thats when he had his greatest returns, until size became a barrier to that. For us small fry(most of us on this board), if you read between the lines, he is saying if you are sufficiently skilled the cigar butt approach is your best bet. Now thats a pretty big caveat, but nonetheless a distinction worth making.

So far they have managed to steer clear of the monopoly argument, and avoid the attention of the feds. It is not entirely clear to me that this will be the case permanently. Were it not for the justice dept. case squashing microsoft's ambitions, i'm not entirely sure google would be where it is today. They have what like 70% of the search market? Where else is there that level of market concentration, and if they start to leverage that into other areas, it may not be long before they get the attention of DC.

I don't think this includes his european holdings. I don't see any other that Fiat on the list which is now US listed. I believe he has some european holdings as well.

Just remarkable genes. Most of our bodies just won't be as forgiving. That is pure luck, as opposed to his investing prowess which is not, and a clear affront to the efficient market theory.

I think a large institutional investor was trying to "comanage". His partner Ben mentioned that in one of the earlier letters. Specifically mentioned was an investment in overstock.com, that did not work out and they held on for far too long, losing other opportunities when Alan i believe wanted to cut that and move on.

Isn't this a function of lower returns on capital in general fostered by an extra loose monetary policy? If capital is made abundant, loose and cheap, isn't it to be anticipated that expected forward rates of return go down as that capital works its way through the system competing for the available opportunity set? I do not think the P&C industry is unique in this perspective. Inflated stock markets make forward rates of return low, and this is worse yet if your view of economic growth is mediocre for the next 10yrs. Deflationary pressures are real an certainly won't add to growth projections going forward.

I think Avon could actually be reinvigorated under BRKB ownership. With Cool running maybe? What a train wreck it has been for the past few years though. I'm frankly surprised another approach hasn't been made.

He levered the fund to take a very large position in Berkshire hathaway approaching 60%. I vaguely remember he levered the fund by something in the 30-40% range. This was when berkshire b share was trading in the 70s and 80s barely above book value and occasionally dipping under. That was right around the time when Buffet put a floor on the price by saying he would buyback shares at less than 110% of book value. Ironically even then it lingered right above that 110% for quite a while. He later raised that to 120%. Hard to beleive it was just barely over 2yrs ago. Not very long before the time Buffett disclosed his Prostate Cancer diagnosis if my memory serves me correct. Pabrai made mention of the leverage Mecham used as well in one of the interviews he did recently, implying he would not have taken that risk. It was a calculated risk, in my opinion, as Berkshire was(atleast in retrospect) clearly undervalued at the time, but what if the economy soured? For the last 3yrs that has always been a background possibility. That is why he calls it unconventional. It will likely be a one off. Leverage can certainly spruce up your returns but it can also kill you on the downside. Notwithstanding the bailouts of 2008/9, leverage is not a healthy approach IMHO, even if it means you have to settle for lower returns. Ironically we(the collective market) are more levered than ever and the US gov't is effectively standing behind that leverage, and traders and investors now count on the Fed. and bailouts in a worst case, instead of using valuations as a floor the way value investors have been taught to do. Sad state of affairs overall for people with unlevered cash and those beleiving in free markets and or a pure value oriented mindset. That said it can be argued that even WEB used some leverage over the decades with permanent capital via the insurance float. However there are qualifiers. It is permanent, leverage is limited and structural, and backed by very reliable virtually permanent cash flows of subsidiaries and in the hands of one of the best capital allocators in history. Thats a lot of caveats for us mere mortals when compared to margin.

This is the simplistic way I look at this share issue. A roughly 5% share dilution for an approximately 20% increase in float/investments per share, and based on underwriting results of the past decade an equal or better insurance underwriting operations with a clearly less stellar investment record. In addition to this there are obviously some cross selling/cross investment synergies to be had. In addition there Is a better dispersion of risk and a good geographic fit. Best part is that any minor dilution of BVPS will be more than offset by this share issue which is being done at 1.31 times BV. I think based on that Bloomberg article it is pretty apparent why they had the sudden reversal on the share issue option. I think we can take what they said at face value. With the Greek sword near term hanging over their head, I think it was the most expedient near term option they had to close this deal which they obviously feel is a great one. Though I would have preferred no dilution. I can live with a 5% dilution for what we got in return. In fact I added to my position in today's fall by 5%! Having collected my dividend from earlier this month I spent just around an additional 3% of my holdings.

As value investors say, Price is what you pay, value is what you get. I agree the price is expensive! As long as value builds, i want it to get even more pricey!

This makes more sense. Once you had adjusted for the fair value of their associates, the stock only traded at 1.1x book from what I could calculate back of the envelope. Hardly an expensive price for a company that seems like it will do moderately well no matter what environment. Yeah, makes a lot more sense. Looks like a very nice acquisition to me. Yes he said inexpensive, and that was in response to options to finance the purchase. Implying he does not want to issue shares at these levels to finance this, especially with surplus capital on hand and with unnamed partners who have apparently approached them to get in on the deal as well.

I think the yield on these falls to 2.5% plus the 5-Year Government of Canada bond yield, so a shade under 3% as of now, on Sept 30th, at the discretion of Fairfax. I would suspect they will just roll it over at 3% for another 5 yrs. i think the holder has the option to convert to series H shares, i haven't looked at the terms on those. I suspect the price drop is related to this. That said the drop in price gets your yield back up to 5% and if you are expecting deflation and needing income, i could think of worse places for your cash.

We will only know thw impact of lower oil/gas orices on emoloyment in the coming months. I'm not as convinced that the job market will motor through this. Thw GDP print is on path for lower revisions already. A second observation is that people are saving a disproportionate amount of the savings on gasoline, compared to the past, perhaps this change of behaviour is from being/feeling over indebted? On the supply side, I agree with your assessments, lower input costs, productivity gains, lower credit costs, and even the stronger dollar speak to lower prices. So with demand tepid, and supply abundant, deflation does appear possible.

Agreed, but you've got to say, their underperforance for the past 6mths has been breathtakng. Whats more, the risk of permanent loss of capital on some of their relatively concentrated bets is now increased. Time will tell whether they are right or wrong. If they turn out to be right this could turn out to be a brilliant entry point. So in a way, to enter here you would have to bet on them. I had a small position in HPQ which i recently exited at $38-39 after a pretty rough roller coaster ride, got in at 25, doubled my position at 18, watched it sink further to 12(and couldn't muster the courage to add further, and then all the way back up to 40. There could be a little more for it to run, but I thought the downside risk matched possible upside gains as well. I once heard them say that up to 30 is a no brainer. Their letter sounded like they planned to sell HP, but delayed due to tax deferral reasons and instead bought jan 2015 puts. They may have reduced or sold their HP position since the letter(pure speculation). However they also mentioned that it is selling for less than 10x cash flow. Staples was another one that was heading nowhere for a long time, until an activist shareholder got onboard and started pushing the really hard choices. Again with the real decline in brick and mortar stores, one wonders how sound the business model is going to turn out to be, the saving grace for Staples is their really strong and competitive online presence. It could turn out to be a reasonable investment, but there is a lot of smoke around the transition, and for me it is in the 'too hard' pile. WAC and OCN have been total disasters to date for them. They got into WAC early, but didn't ring the register when it more than doubled for them, reading the letter it sounded to me like they might feel they should have, and now they are back to holding and defending the position, with certainly more regulatory risk in the air. They as much as admitted that investing in OCN was a mistake. For my part, I am not sure how much of this is isolated to OCN and how much is industry practices. One thing is for certain, the selling of MSRs to these secondary servicers has virtually stopped in its tracks. They see it eventually doubling to 2 trillion. We will know in a couple of years, but WAC is either gonna be a 2-3x from here or crash the way OCN is doing. I do have a small position in WAC, but haven't yet mustered the courage to add to it thus far, even after reading all I could find on them. Their holdings in the oil patch, have of course taken a beating like everything else in that space.They claim to have experience in that area, but commodity based investing is a difficult thing, the ground is unsteady, and valuing a business already has so many variables, that we don't need to add anither big one. Over the years, i have found that area hard to predict and invest in. None other than WEB had permanent loss of capital in this arena with COP in 2007/8. One of their recent additions Dundee i find interesting, it crashed literally months after they initiated a position in it in the the mid teens. It now trades around 10. It does have some canadian oil/gas exposure, and real estate exposure but perhaps the selling has been overdone in tis one. But nonetheless, their oil/gas holdings are not going to recover anytime soon, and one always does risk dilution, and the time loss of capital. Their claim is that these companies are more gas centric, and western based, hence more valuable. I'm skeptical. They are full of praise for the WPX ceo, who appears central to their investment thesis. At any rate, the collapse of oil/gas has hurt them bad. I hope for their sake they exited MSFT before its recent results driven pull back. I always felt the optimism over the new CEO was a bit overdone, especially after the tortured decade under Balmer. It almost felt like a relief rally. LOL. FWIW, I do think Nadella is a better CEO, and for sure I doubt he will burn cash the way Balmer's acquisitions turned out to be, but time will tell. With the Cash microsoft brings in predictably Q after Q, you could almost say the capital allocation decisions of the CEO are just as important as his/her role running the company. I would be tempted if it gets to mid 30s again, but I don't really sense any near term catalysts to move this behemoth. Their defense of their Barricks gold position bothers me. This is another company that has not had capital allocation discipline during an upcycle in gold. So much so that they did a multi billion dollar dilutive capital raise last year. Their stock has gone nowhere in over a decade, despite a tripling of the gold price. Their profitability likewise has been average. So with average profitability, an inability to print money after a tripling of your products price within a decade, and poor capital allocation decisions, this is not a good buy in my view. They claim it is an option on central bank induced volatility, whcih makes some sense, but it sure appears to be an expensive option. They claim the new management will do better with cash flows etc. call me skeptical. I've lost enough in miners not to believe anything they say. They always dilute you and at the worst possible times too! If gold makes a new high however, this is a triple from here, but you had better ring the register quickly if you happen to catch that ride. Leucadia and Whitemountain have gone nowhere in recent times, but remain good long term bets IMHO. So all in all, a very rough year mainly due to their commodity exposure, regulatory overhang with WAC/OCN, and ?? Near term peaking of their large tech. bets. What a way they have suffered, with over 20% points of underperformance. They will have a long way to climb back to get out of this underperformance hole and make their 10/15 yr charts look good.